news

investors told emerging markets need a rethink

November 2006

Progress on responsible business practice on the part of companies in
emerging market countries has reached a point where socially
responsible investors in Europe and the US should be taking a closer
interest, a study suggests.

Ethical Investment Research Services, the London-based provider of SRI
data to more than 80 institutional investor clients, claims to have
identified ‘significant potential opportunities for responsible
investment in some emerging markets’ in a study of 50 companies based
in 14 countries.

Only 0.1 per cent of SRI funds worldwide are invested in emerging
market assets, the International Finance Corporation estimates. That
figure excludes the $1.1billion (£580million) that the IFC, which is
the world’s largest investor in emerging market equities, invests along
SRI lines in this asset class.

Eiris says the findings indicate it is a ‘misconception’ that all
emerging market companies are making poor progress on social and
environmental issues.
A ‘clear majority’ studied ‘show some evidence’ of addressing the
issues, most ‘provided a wide range of extra-financial data’ and
several gave ‘significant consideration’ to the area.

The research is published at a time when institutional investors are looking to diversify their equity investments.

Posco of South Korea and China Steel (both industrial metals producers)
are mentioned as achieving ‘positive scores’ in a best-in-class
analysis of the 50, and Hyundai Motor (automobiles and parts), also a
South Korean company, is named for the quality of its CSR reporting.

At a sectoral level, banks did well. Seven of the nine studied achieved
a higher rating than some developed-country banks. But oil and gas
producers, telecoms providers and chemicals companies lagged
significantly behind their counterparts in developed countries, both on
disclosure and on CSR activity. Eiris suggests investors apply
engagement techniques to raise standards.

The companies were selected by market capitalization and evidence of
CSR activity. The largest was Samsung Electronics (South Korea) and the
smallest Nedbank, which is South Africa’s third-largest bank by total
assets. Getting performance data from the companies was a particular
problem for the researchers